Rise in gas prices blamed on erratic supplies

May 22, 2013

Greg Coates of Detroit gases up Wednesday at the Mobil station on Ford Road in Dearborn. Prices are up about 20 cents per gallon from a week ago across the region. But it probably won't last, forecasters say, because conventional wisdom that Americans suddenly start driving more in the summer is not true anymore. / Andre J. Jackson/DFP

Detroit Free Press Business Writers

Gas prices are up about 20 cents per gallon across metro Detroit. These stations are on Ford Road in Dearborn. / Andre J. Jackson/DFP

The latest uptick in gasoline prices will cause Trevon Cegers, a courier who shuttles documents for law firms and receives a fixed per-mile reimbursement, to spend less on other things.

“They need to raise the mileage rates for people like me who drive for a living,” said Cegers, 33, of Livonia.

Yes, gas prices are up nearly 20 cents a gallon from a week ago.

Yes, it’s frustrating coming just before Memorial Day weekend.

But it probably won’t last, forecasters say, because conventional wisdom that Americans suddenly start driving more in the summer is not true anymore.

More than 21% of people responding to a Swapalease.com survey said they did not plan to travel over Memorial Day weekend, up from 16% last year. Those planning to travel more than 250 miles fell to 18% from 22% a year ago.

For now, the pain is real. Less selective Michigan motorists paid as much as $4.29 for a gallon of unleaded regular today at the perennially highest-priced BP station at Middlebelt and Wick roads near Metro Airport. Those who shopped around could find it for $3.74 at most Speedway stations. The statewide average was $3.93 as of this morning, according to the AAA Daily Fuel Gauge Report.

This week’s spike is driven mostly by intermittent refinery shutdowns as the major producers prepare to process the cheaper, but dirtier, tar sand oil from Canada, said Tom Kloza, chief oil analyst with GasBuddy.com.

“Yesterday and today, wholesale prices are backing off considerably,” he said. “In Michigan, you didn’t break any of the records that were established in 2008 or 2011, and I don’t think you will.”

Metro Detroit’s record unleaded regular price — $4.23 a gallon — was reached May 4, 2011, according to AAA.

Kloza and his Chicago-based colleague Patrick DeHaan said the recent spike is more about erratic supplies than rising demand.

Total U.S. gasoline consumption over the past four weeks was 8.5 million barrels a day, the lowest seasonal level in at least 10 years.

Midwestern refineries are running at 83% of their capacity, according to GasBuddy’s data, far below the 93.5% rate for East Coast and 91% for Gulf Coast refineries.

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“If refiners in your region have low output, you’re more likely to see prices rise,” DeHaan wrote in a report today.

Many refineries in the upper Midwest are spending billions of dollars to process more Canadian tar sand crude, which is less expensive than the other form of crude known as West Texas Intermediate.

BP’s Whiting, Ind., refinery near Chicago is finishing a multibillion-dollar project that will more than quadruple its capacity from 80,000 to nearly 350,000 barrels per day. The expansion was expected to be complete by now, but delays will stretch that until this fall, DeHaan said.

Wholesale gasoline prices fell about 2% Tuesday to $2.84 a gallon and another 0.9% today to $2.82 a gallon on the New York Mercantile Exchange, the lowest price since May 2.

U.S. crude production has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, especially in the Midwest and Great Plains.

Today, the Energy Information Administration reported that gasoline stockpiles grew by 3.02 million barrels in the last week to 220.7 million. That is 19.7 million barrels, or 9.8%, more than last year, according to GasBuddy’s DeHaan.

“You’re going to see some lower prices ahead,” Kloza said. “Demand has steadily been deteriorating on a year over year basis.”